United States: Talk Is Cheap – Promises To Pay Are A Poor Substitute For Adherence To Contractual Notice Provisions

A recent Wyoming case – JEM Contracting, Inc. v. Morrison –
Maierle, Inc. – serves as a reminder to
contractors and subcontractors of the importance of following the
contractual requirements for notice when differing site conditions
are discovered. As the contractor in that case learned, failure to
comply can serve as a waiver of such claims even when the upstream
party makes subsequent promises of compensation for the cost and
delays associated with the differing conditions.

JEM Contracting ("JEM") entered into contracts with
two Wyoming counties to perform construction services to improve
3.6 miles of a road which traveled through both counties. The
counties hired Morrison-Maierle, Inc. ("MMI") to provide
engineering services and serve as the owner's representative on
the project. There was no direct contractual relationship between
JEM and MMI.

JEM began work on June 21, 2010. That same day JEM verbally
reported to MMI's on-site representative that it had discovered
a differing site condition that would increase time and costs due
to the additional work required to pulverize the existing road.
JEM's contract included a provision regarding the procedure for
asserting differing conditions claims:

Contractor shall notify the [counties] and [MMI] in
writing about differing subsurface or physical conditions within 5
days of discovery and before disturbing the subsurface as
stated above. No claim for an adjustment in the contract price or
contract times ... will be valid for differing subsurface or
physical conditions if procedures of this paragraph 4.03 are not
followed.

(Emphasis added).

JEM did not provide written notice of the differing condition
until 18 days later, on July 9. The two parties met that same day
to discuss the issue. JEM alleged in court that at this meeting MMI
told JEM that it would be paid for the increased costs if JEM could
find savings on the remainder of the project so that it could
complete the work within the contract price. When JEM later
submitted its claim formally, however, both MMI and the counties
rejected it. JEM brought suit against both shortly thereafter.

JEM alleged that it had relied on MMI's statements to its
detriment and that it was induced to continue working due to these
statements. The trial court rejected JEM's arguments due to
JEM's inability to show harm from MMI's representations
because JEM's contract required it to continue performance
during a dispute. JEM appealed and eventually the matter arrived
before the Wyoming Supreme Court. Wyoming's highest court
initially noted that the lower court had failed to fully consider
the types of harms that could have resulted from MMI's
representations – namely the reduced profit JEM suffering in
cutting other areas of work in order to stay within the contract
price. Even still, the court said, JEM had clearly failed to assert
its claim in writing within the five days required by Paragraph
4.03. The Wyoming Supreme Court found that JEM's inability to
prove that MMI's representations on July 9 caused JEM any harm
was irrelevant, as JEM had already waived its right to such claims
when the five day time limit expired.

Differing conditions are common on projects, as are exchanges
like the one that occurred between JEM and MMI on June 21, 2010.
JEM likely had good intentions for not following up its verbal
notice with a letter, perhaps because it did not want to 'rock
the boat' early on in its performance of work. However, as this
case showed, once a dispute arises good intentions are a poor
substitute for compliance with the requirements of the
contract.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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